Alcatel-Lucent's New CEO Begins Bold Reconstruction

Alcatel-Lucent this week unveiled a bold restructuring plan under new CEO Michael Combes, with the aim of cutting costs, shifting its focus to IP Networking and driving more sales through the channel.

The new plan, called "The Shift Plan," is the first major restructuring effort staged by Combes, a former Vodafone executive, since he joined the company April 1. The plan itself, however, is the latest in a series of turnaround attempts made by the struggling Alcatel-Lucent over the past several years, as the company looks to grow its cash pile and stay competitive against rivals including Ericsson, Huawei and Cisco.

Under The Shift Plan, Combes said Alcatel-Lucent will sell off select assets -- without specifying which ones -- with the aim of generating 1 billion Euro, or $1.3 billion, by 2015. The company is also looking to trim its workforce, along with its "sales, general and administrative" expenses, to save an additional $1.3 billion.

"With The Shift Plan, which is designed to be self-funding, we are aligning realistic and deliverable ambitions with our core competencies," Combes said in a statement. "Over the next three years we are targeting Euro 1 billion of fixed costs savings, and carefully defined and timed asset sales expected to generate at least an additional Euro 1 billion."

Alcatel-Lucent, which reported a net loss of 353 million Euro, or $463.2 million, for its first fiscal quarter this year, also said it's shifting its focus from being a "telecommunications equipment generalist" to being a specialist in networking IP and ultra-broadband access, both mobile and fixed. To do this, the company plans to pump 85 percent of its total R&D investments into these two areas by 2015.

As part of this shift, Alcatel-Lucent said it hopes to see revenue for its Core Networking segment -- which includes IP routing, IP transport, IP platforms and related services -- climb more than 15 percent by 2015 to total roughly 7 billion Euro.

Meanwhile, Alcatel-Lucent said it will look to invest more in 4G LTE, vectoring and fiber-based access systems, while pulling R&D spend on legacy technologies.

David Carissimi, COO at Icon Voice Networks, an Irving, Texas-based solution provider and master distributor for Alcatel-Lucent, said he thinks the restructuring strategy is "brilliant," especially when coupled with Alcatel-Lucent's already growing focus on technologies like mobility and video.

"I think Alcatel has one of the best stories, if not the best story, in the communications enterprise business. I think that when you look at the product portfolio as a whole, in my opinion, it's second to none, including Cisco or anybody else," Carissimi told CRN. "I think that their focus on video and BYOD is spot-on, and I think that that focus combined with their focus on open standards is nothing but a huge plus. If you add all of that on top of their expanded focus on their core infrastructure [business], ... I think it's a brilliant strategy."

Michael Soper and Chris Antlitz, analysts at Technology Business Research (TBR), also view The Shift Plan as a step in the right direction for Alcatel-Lucent, and one that could help boost the telecom giant's relevance in markets like cloud and software-defined networking (SDN).

"TBR believes The Shift Plan represents a positive step in Alcatel-Lucent's bid to achieve consistent profitability and cash flow. Michel Combes has the background to swiftly and efficiently execute the plan, which is necessary to stabilize the company," wrote Soper and Antlitz in a research note. "The Shift Plan will usher in a more nimble Alcatel-Lucent that can quickly respond to market and technology changes, including capitalizing on burgeoning opportunities in cloud and software-defined networking."

Along with cutting costs and increasing its focus on IP networking and broadband, Alcatel-Lucent's Shift Plan is meant to help the company better target "extra-large" enterprise accounts, Web-scale customers, service providers and mobile service operators (MSOs), Alcatel-Lucent said. It also aims to move more sales through the channel, a goal that isn't entirely surprising given Alcatel-Lucent's renewed focus on its enterprise business, as well as its North American channel, last year.

The company also announced a few management shifts as part of its restructuring plan, including the resignation of CFO Paul Tufano, who Alcatel-Lucent said was leaving the company for personal reasons. A new CFO has not been named.